USING LEVERAGE IN REAL ESTATE INVESTING
LEVERAGE TO INCREASE YOUR RETURN ON INVESTMENT
Investing in real estate is a great way to grow your wealth and create long-term stability. But if you want to maximize your return on investment, leveraging can be an effective tool. Leveraging means using borrowed capital to increase the potential return of an investment. The concept behind leverage is simple: use a smaller portion of your own money to buy a property, then borrow the remaining funds from a lender.
Leverage can be an effective way to increase your return on investment (ROI). With leverage, investors are able to purchase properties at a fraction of their total cost, giving them a greater return when it’s time to sell or creating monthly positive cash flow for held property. SCDC's investor-purchaser program helps investors use leverage in the most effective way.
For real estate investors, there are several advantages that come with leveraging their investments. For example, this approach allows investors to expand their portfolios quickly, increasing their potential profits with each new purchase. It also gives them access to more expensive properties they might not be able to afford otherwise, allowing them to get more bang for their buck in certain markets or neighborhoods. Leveraging their investments allows investors to diversify without risking too much capital all at once.
By putting down less upfront and still reaping larger returns down the line – along with access to more expensive properties and wider portfolio diversification – leveraging can bring greater rewards than simply saving up over time or even playing it safe by purchasing cheaper options outright.
To take advantage of this powerful tool, SCDC partners with strategic lenders and also participates as a lender to our investor-purchasers to execute realistic goals when developing their real estate portfolios.
The SCDC multifamily real estate investing process allows you to purchase 1 to 5 brand new multifamily apartment buildings per year that are either a 4-Plex or an 8-Plex with only $5,000 total out of pocket per building. Utilizing leverage this way increases your Return On Investment and frees up your additional cash for other investments allowing you to diversify your investment portfolio to spread risk around, as well as potentially increase your profit returns.
Let's say you want to buy an apartment building for $1,000,000. Typical financing would require a minimum of 20% to 30% down plus closing costs for the investment purchase; or $200,000 to $300,000 cash down plus up to an additional $15,000 or more in closing costs. Investor-Purchasing the same amount with SCDC requires only $5,000 total out of pocket, freeing up over $200,000 to $300,000 dollars that you could invest in other properties, the stock market, start a business with, or utilize as cash reserves.
Optimizing leverage can also increase your return in real estate investing through appreciation. When you use more borrowed funds to buy an income-producing property, you may be able to take advantage of growth in the value of the property over time, which can result in greater returns on the original investment. As long as your properties cash flow above their debt service, the longer you own them the more value and returns you gain from them.
Another key to benefiting from potential appreciation is to make sure that you buy investment properties that are in great condition, can be renovated for increased value, or preferably are like the SCDC models which are brand new construction under warranty and purchased for less than their appraised value, thus creating immediate equity as well.
By utilizing leverage through loans and other forms of financing to purchase multifamily apartment buildings from SCDC, investor-purchasers can exponentially increase their rate of return on investment compared to investing with just their own cash or other financing models.
When it comes to investing in real estate, leveraging is one of the most powerful ways to increase your path towards financial freedom more quickly. Using other people’s money to buy more assets and increase your potential profits is the way that the rich and wealthy have always done it.
Finally, leveraging allows investors to diversify their portfolios quickly by expanding their asset base beyond just one or two investments into multiple types of properties and locations around the country or world. By having more assets spread across multiple areas with varying levels of risk, investors are less exposed to financial downturns caused by single factors that affect specific markets. A well-diversified portfolio makes it easier for investors to ride out market downturns and benefit from gains when markets start trending upward again.
By weighing potential risks against expected rewards carefully, investors can strategically use leveraging techniques within their real estate investments plans as a means for growing their wealth faster than would otherwise be possible with cash investments alone.
